Buy Education Now and Pay Later!

You have certainly seen this offer before—“Buy Now, Pay Later!” It often applies to credit cards, but the same concept can be used when you are thinking of student loans. Basically, you are buying money to attend college, and you will pay for it later because you have to pay back the loan plus interest. Attending college is an important goal for many people, and it is often terribly expensive. If you cannot afford college outright, you might need to turn to student loans. For this reason, it’s important to know about the different student loans that are available.

Some of the most common types of student loans include state loans, private loans, institutional loans, Stafford loans, Perkins loans, and Plus loans.

State Loans

State loans are student loans that are provided by the state governments. Typically, you need to be a resident of that state or attending school in that state. Different states will have different requirements, interest rates, repayment terms, etc. For example, Texas has a program called the Hinson-Hazlewood College Student Loan Program.

Private Loans

Private loans are provided by private banks and lending agencies. For example, Chase offers student loans as well as Wells Fargo. Each of these companies will have different interest rates, repayment terms, etc. Many private loans will require a cosigner. The cosigner will also sign the loan, and he or she will also be responsible for repayment. For example, if you cannot make payment, this person will be responsible for making them. With student loans the cosigner is typically a parent.

Institutional Loans

Institutional loans are student loans that are offered by the schools themselves. Not all institutions will offer student loans, and each one will have different interest rates, repayment terms, and more. The best way to learn about institutional loans is to look at the school you attend or are planning to attend to see what they have to offer. The financial aid office will generally have the information that you need.

Stafford Loans

Stafford loans are one type of federal student loan, and there are a variety of rules and regulations surrounding them. There are subsidized Stafford loans and unsubsidized Stafford loans. The subsidized loans are now only available to undergraduate students, and these students can borrow up to $23,000. Each year, the student can borrow a different amount—$3500 the first year, $4500 the second year, and $5500 the third and following years. These loans are based on financial need. Repayment of these loans typically starts six months after graduating, leaving the school, or dropping below the enrollment requirements (at least half time). While you are in school, the government will pay your interest, and in some cases, the government will pay it after you graduate. The interest rate varies for these loans.

There are also unsubsidized Stafford loans, and students also have to be enrolled at least half time. The amounts that can be borrowed each year are the same as the subsidized loans, but students can borrow an additional $2000 per year if their aid has not exceeded their cost of attendance (up to $31,000 total). Graduate students can also obtain these loans, though the terms vary slightly.

Stafford loans are complex, and there is more to them than is listed here. As a result, you want to do your own research before pursuing this type of loan.

Perkins Loans

Perkins loans are also federal loans, and they are open to undergraduate and graduate students. Students do have to be enrolled at least half time. Undergraduate students can borrow up to $5500 a year until they reach $27,000 while graduate students can borrow up to $8000 a year until they reach $60,000. When a student leaves the school, graduates, or drops below half time, he or she will have to start repaying the loan after nine months, and the loan needs to be repaid within 10 years. There are postponement options. The interest rate is set at five percent, and interest is paid by the government while the student is in school or in a grace or approved deferment period.

PLUS Loans

Plus loans are also federal loans, and there are two types—Parent PLUS loans and Grad PLUS loans. The Parent PLUS loans are generally taken out by parents or legal guardians, and they can borrow up the cost of attendance. They usually have 10 years to pay the loans back. Deferments and forebearances can be used, and the repayment terms for this type of loan differs depending on when the loan was disbursed.  These loans used to be distributed by the Federal Family Loan Program or the FFELP, but this was eliminated in 2010. These loans are now managed by the Direct Loan program through the Department of Education.

Grad PLUS loans can be used by graduate or professional students, and they can also borrow up to the cost of attendance. However, if they receive other aid, the amount which they can borrow will be lowered by the amount of aid that they receive. Repayment terms differ depending on when the loan was dispersed, but students must start paying six months after dropping below half time on any Grad PLUS loans that are dispersed now. Currently, the fixed interest rate is 7.9 percent.

Do Your Research

If you are looking into student loans for yourself or for your child, it is very important to do your research. The terms surrounding these loans are complex, and you want to make sure that you understand them completely. You don’t want to be surprised by a high or variable interest rate. You don’t want to be surprised when you have to start repaying the loans because you or your child dropped below half time or graduate. You can find a variety of sources online to learn more about these loans, and you can often find local student aid groups that can help you learn more about the variety of student loans that are available. If you have a financial advisor, this is also a good place to start.

Do you have a student loan? What do you like about it and what do you dislike? Would you recommend this particular loan to others?

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  • Ms Bass /

    I received several student loans to go to school but due to life events, I was unable to finish my degree. I still would like to return to finish my degree but I am focusing on finding other avenues other than student loans. Sallie Mae and AES along with the rest of those vultures will not haunt me the rest of my life. I cannot wait to pay them off. Outside of my car, student loans are the only loans that I have but only because I haven’t purchased a home yet. But student loans play a huge part in the income to debt ratio when purchasing a home. If you can help it at all, I would advise not taking out any student loans.

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